Gilead Sciences Case Study - Gilead Sciences and Sovaldi: The Cost of a Cure (A)

Gilead Sciences and Sovaldi: The Cost of a Cure (A) Introduction December 6, 2013, had the makings of a good day for Gilead Sciences, Inc. The United States Food and Drug Administration (FDA) had just approved Sovaldi,1 a hepatitis C treatment, after a wildly successful trial program that saw more than 90% of patients cured.2 In addition, the cost of the treatment would be in line with less effective hepatitis C treatments, and several times lower than the cost of treating or replacing a damaged liver, a possible consequence of hepatitis C.3 This was not the message that traveled through the media on December 6, though. Instead, the fact that the $84,000 total cost of the treatment amounted to $1,000 per pill captured the attention of the media, the public, and even government officials. While it is not uncommon for drugs to exceed this cost, none target a disease with such a large patient population. Gilead Sciences has its work cut out for itself, but it would not be the first time the company faced such an obstacle. Gilead Sciences, Inc. In 1979, Michael Riordan graduated with honors from Washington University with degrees in biology and chemical engineering. Upon graduation, he accepted a Luce scholarship, which allowed him to travel to several countries in Asia, including a stint with the Ministry of Health in the Philippines.4 While working at a malnutrition clinic in Asia, Mr. Riordan contracted dengue fever. Speaking about his experience, he said: “I was flat on my back for three weeks and nothing could be done about it. There’s just not much in the medical toolkit for this virus.”5 His experiences in Asia, particularly in dealing with dengue fever, created a curiosity within him about the science of human disease. Mr. Riordan went on to receive his M.D. from Johns Hopkins School of Medicine.6 He was not finished with his education, though, and after finishing medical school decided to pursue an M.B.A. from Harvard. After graduation in 1986, he took the seemingly unusual step of joining Menlo Ventures, a venture capital firm.7 One year later in 1987, Dr. Riordan founded Gilead Sciences, named after what is considered the world’s first pharmaceutical product. His experience in venture capital served him well, as he raised $2 million in venture capital funding in 1988 and another $10 million in 1989.8 Dr. Riordan’s vision for Gilead was to treat and eventually eradicate viruses such as the one he faced in Asia, as well as HIV, hepatitis B, and influenza. After several more rounds of private funding, Gilead Sciences went public in January 1992. The IPO raised more than $86 million for the company, but Gilead still had no pharmaceutical products. In fact, Gilead’s first product did not debut in the United States until the latter half of 1996.9 The slow growth of the company did not deter Dr. Riordan from pursuing his vision. In 1998, Gilead acquired NeXstar Pharmaceuticals, a Colorado company with several products already on the market and sales that were three times that of Gilead. This led to a period of tremendous growth for Gilead, and by 2001 its sales increased by 500 percent. Throughout the 2000s, Gilead pursued its own research and development, and continued acquiring other companies. In 2002 it acquired Triangle Pharmaceuticals for $464 million in order to gain access to Triangle’s HIV and hepatitis B treatments.10 In 2011, Gilead paid $11 billion for a company with a promising treatment for hepatitis C: Pharmasset Inc.11 Pharmasset Inc. A student at Emory University first introduced Dr. Raymond Schinazi and Dr. Dennis Liotta, professors of pediatrics and chemistry respectively, to each other. Both were interested in virology, with a particular interest i